Tag Archives: financial advice

Buy Stocks or Real Estate Instead of Paying Down Student Loan Debt

From Mike ‘the lawyer’ Cernovich:

I currently have a relatively large mount of unpaid student loans. My student loan interest rate on the outstanding balance of the two loans is at 2.2% and 3.65%, respectively. I pay the interest only, as the difference between my student loan interest rate and market returns are substantial. (Why pay a 3% loan off when market returns have been crazy high? Every dollar you use to pay off a student loan is a dollar you can’t invest in the market.)

This is brilliant advice. All these talking heads say, ‘pay down your student loans first!’ without even thinking of the alternatives. Put the money in the stock market and make 10-30% a year, which is much higher than the 3-6% interest on student loans. Even the dividends on the S&P 500, which are 3% a year, is good enough. Or put the money in Bay Area real estate and make 15-20% a year doing nothing on a 4% 30-yr mortgage. The obvious downside is if the market crashes and does not recover, but the odds are that won’t happen. The left has been predicting a crash since 2009, and they keep being wrong. Interest rates will remain low, which is good for borrowers, and real estate and stock prices.

This is the mindset or strategy that separates the rich from the poor; smart people use debt to their advantage to build wealth through leverage; the poor and middle class are scared of debt and will do anything to avoid it, even if it means being poorer as a result. The more leverage you can control, the more you can skim off the top. If you control a $1,500,000 home in the Bay Area, you can skim off $20,000 a month just from the appreciation alone using a home equity line of credit. If the mortgage is $6,000 a month, you are keeping $14,000 every month doing nothing.